Wednesday, June 29, 2016

Brexit: How Will Singaporeans Be Affected?


The UK just voted in favour for British exit from the European Union. What does it mean for Singapore? What will happen now that British voters decided to leave European Union (EU)? The only honest answer is that we don’t know. A country leaving the EU isn’t something that happens every other month. The most we can do is speculate and play it safe – even if we’re all the way in Singapore.
 
Britain Isn’t Leaving the European Union Overnight
The United Kingdom (UK) is not leaving right after this referendum. It will probably be 2018 by the time they leave, and a lot of what happens next depends on withdrawal negotiations. That is, they need to work out what to do with the current EU migrants in the UK, and whether the EU is going to raise tariffs against British companies. All of these mean high volatility in the stock market, especially in bourses like the FTSE 100. Meanwhile, here is how Brexit is rocking the world economy, and the good and bad ways it can affect you:
 
1. Traveling to the UK Costs Less
The British pound is at a 31-year low today, making it very cheap for Singaporeans who want to visit the UK. It is not likely to stay this low for long; but with S&P threatening to downgrade Britain’s AAA credit rating, it’s likely that the pound will remain low for quite a while. That is good if you want to buy a house there, study there, or vacation there.
 
2. Investors Should Minimise Exposure to UK and EU Companies
Singaporeans should minimize their exposure to UK and EU companies to avoid volatility. This means looking into your mutual funds to see if you’re exposed, and consulting your financial advisor on rebalancing your portfolio. For example, if you have an Investment Linked Policy, you may want to make sure the various sub-funds do not hold much in the way of UK or EU based companies
 
3. Safe Haven Assets Like Gold and the Japanese Yen are Rising
Gold prices have already risen to $1,277 per ounce and can climb as high as $1,400 per ounce. Along with safe haven assets like the Japanese yen, this is likely to rise further. This is because investors will try to avoid volatility by putting money where they think it’s safe. As such, prices of gold and silver, as well as the strength of the Japanese yen, are likely to rise. It’s good news for those who already have such assets, but those looking to buy should speak to an advisor. It might be too late to do so at this point, and prices may already be too high.
 
4. Speak to Your Wealth Manager About Your Assets in the UK
If you own a house in the UK or hold other such assets, speak to your wealth manager about rebalancing your portfolio. It may not longer be wise to count on UK property holding its value if you’re nearing retirement, as the current turmoil will not be quickly resolved. It could take many years for the UK to recover, and that will affect asset values there.
 
5. Singapore Will See Fewer British Tourists
We may get fewer visitors from the UK over the next two years. This is not a HUGE deal, as British tourists only made up 3.2% of our visitor arrivals in April 2016. But we can expect to see less of them as their buying power plummets. Businesses that specialise in serving tourists from the UK may also feel the pinch from Brexit.
 
Do Not Make Financial Decisions Out of Fear
If you think you’ve just made a financial mistake after the Brexit announcement, give yourself a day or two to cool off. Do not try to “recoup” the loss by making brash and immediate investment decisions – this is akin to a common gambling fallacy, in which gamblers try to make up for a bad round by doubling or tripling the stakes on the next.
When you are anxious or distressed, you are more likely to make a mistake. Taking immediate action after a loss may compound the damage, rather than make up for it. Give yourself a day or two to reflect on what went wrong, and then carry on. 

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